(Adds details on market intervention, lower bank reserve requirements)
WASHINGTON, Oct 18 (Reuters) - The recent weakening of Brazil’s real against the dollar has not spurred inflation, Brazilian central bank governor Roberto Campos Neto said on Friday, adding that there was room for a cut in the country’s benchmark Selic interest rate.
At a news conference in Washington, where he attended events at the International Monetary Fund (IMF) annual meetings, Campos Neto noted Brazil has a floating exchange rate and that the bank only intervenes in currency markets when there is a liquidity gap in the market.
The comments came after reports Campos Neto had said the central bank might intervene in foreign exchange markets in case of excessive dollar flows into the country thanks to government asset sales.
Pressed by reporters, Campos Neto said such interventions would only occur if there were a breakdown in markets.
“What we always say is that the central bank intervenes when there is a liquidity gap, that is, when there is a rupture in the market,” he said.
Brazil’s central bank cut its benchmark interest rate to a new record low of 5.50% last month and suggested more rate cuts are in the pipeline, highlighting an increasingly uncertain global outlook and tame domestic inflation.
While Brazil’s real is trading at around 4 per greenback , weak economic growth, high unemployment and substantial slack in the economy suggest inflation will remain below target this year and next, analysts say, requiring more easing.
Former trader Campos Neto also said on Friday that Brazil’s growing credibility has helped limit the pass-through from the real’s depreciation, adding that Brazil’s risk premium had fallen despite the weakened exchange rate.
In other news, Campo Neto said authorities would soon make small reductions in banks’ reserve requirements, which he sees as structurally high.
A more significant decrease in reserve requirements will follow an ongoing restructuring of the liquidity system for financial institutions, he said, adding that the cut could reach 100 billion reais ($24.30 billion).
Under a revamped system, the central bank would offer loans to financial institutions during a liquidity crisis, using previously priced assets in their credit portfolios as collateral, Campos Neto said.
“If we can make a liquidity assistance system that works, if we can extract liquidity from private credit in emergencies, we can have a much lower reserve requirement,” he said, adding that the new system should be ready between 2020 and 2021.
$1 = 4.1146 reais Reporting by Marcela Ayres and Alexandra Alper; Editing by Alison Williams and Tom Brown